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Tuesday, May 6, 2008

Oil stood firm today afer setting a new record of almost $121 a barrel, the latest spurt in an advance that has seen prices double over the past 12 months.

Supply disruptions in Nigeria, where a strike and attacks by militants has hit production, has supported a market that is nervous about any threats to supply.

Tensions with Iran racheted higher when Tehran refused to accept inspections of its nuclear programme.

US light crude for June delivery was up 7 cents at $120.04 a barrel, by 1155 GMT after earlier touching a record high of $120.93.

London Brent crude was up 33 cents at $118.32 a barrel, after an earlier record of $119.07."The downward move in oil last week now seems like only a correction," Christopher Bellew, senior vice president at Bache Commodities, told Reuters.

"The effect of the credit crisis in the US is reducing people's disposable incomes and you'd expect this to have an impact on the oil price, but it's not having any impact."

Demand from emerging markets such as India and China is more than compensating for the US downturn, he added.

Goldman Sachs predicted oil could soar towards $150 to $200 a barrel because of a lack of adequate supply growth.

"The possibility of $150 to $200 per barrel seems increasingly likely over the next six to 24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty," the bank said.

The US investment bank had predicted back in 2005 that oil was entering a "super-spike" period.

Oil prices further into the future have also risen sharply, with prices out to 2016 above $110 a barrel..

Meanwhile, ExxonMobil said today it had returned oil output in Nigeria to normal levels after an eight-day strike, but Shell said its production there was still down by about 164,000 barrels per day due to recent militant attacks.

"A lot of this is supply-driven, with the market very vulnerable to any disruption in supplies," Mark Pervan, a senior commodities analyst at the ANZ Bank told the news agency."We're seeing large oil-producing countries coming up as a question mark," he said.US President George W. Bush is expected to talk with officials from Saudi Arabia about the effects of high fuel prices on the US economy on his trip to the world's top exporter later this month.

Bush has called on Opec to raise output to help bring down prices.

The US dollar, whose decline in the past months has been driving speculative investments in dollar-denominated crude and other commodities, slipped further today on continued doubts about the health of the US economy despite upside surprises from recent economic indicators.Tomorrow traders will watch the weekly US government report on fuel inventories, which is expected to show a 1.8 million-barrel build in crude stocks, a 1.1 million-barrel rise in distillate inventories and a 100,000-barrel fall in gasoline stocks.